Risks based audit plan is the audit plan that audit resources and audit works are deployed and focus based on clients’ risks.
This kind of planning requires the auditor to understanding the client’s nature of the business, control the environment, and then put their audit resource as well as schedule by favorite to the areas that are high risks.
This planning will include all the necessary information like audit scope, audit objective, reporting line, audit schedules as well as an audit report. The audit schedule will include all the audit areas with the timeline that the auditor will perform their review.
This schedule is the result of the risks assessment that the auditor performs at the planning stage. This planning is very important and most of the audit firms, as well as internal audits, adopt this approach.
Risks based audit plan is important for auditors for two reasons. First, it helps the auditor to minimize its risks. As we all know, audit risks are a combination of inherent risks, control risks, and detection risks. Detection risk is the risk that control by auditors.
If auditors effectively assess their client’s risks related to financial statements, the auditor will then could tailor the risks audit procedure to detect those risks. The audit risks will reduce accordingly.